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Our Promise...
Victor Company of Japan, Limited
Annual Report 2005
For the year ended March 31, 2005

Table of contents

  • Page 1
    Victor Company of Japan, Limited Annual Report 2005 For the year ended March 31, 2005 Our Promise...

  • Page 2
    ... An Avid Supporter of Culture and the Arts Management Team Corporate Governance 34 55 56 58 59 60 Financial Section JVC Group (Japan) JVC Group (Global) History of JVC Organization Chart Corporate Data Cautionary Note: Forward-Looking Statements When included in this annual report, the words...

  • Page 3
    ... that deliver high-quality sound and images. We are working to add a robust array of network technologies vital in the digital age to the host of technologies that we have developed since the analog age to help create a succession of distinct products that will set us apart in the market. JVC also...

  • Page 4
    ... '01 0 200 400 600 800 % Professional Professional Electronics Electronics '05 8.1 See Page 18 '04 % '03 '02 '01 0 20 40 60 80 100 Components Components & & Devices Devices '05 5.1 See Page 20 '04 % '03 '02 '01 0 20 40 60 80 Software Software & & Media Media '05 11.4 See Page 22 '04...

  • Page 5
    ... Digital video cameras • DVD players/recorders • Car AV systems • Audio systems • VCRs Highlights • Segment sales in Japan rose substantially, encouraged by the strong performance of LCD TVs, three-in-one DVD recorders, and audio systems. • Despite the successful launch of HD-ILA rear...

  • Page 6
    ... Second Compact Component System with Wood Cone Speakers EX-A5 Introduced (April 2004) • HD-ILA Rear Projection TVs Launched in North America (July 2004) • Low-Cost "Extended DUV" Mastering System, New Technology to Create Read-Only Blu-ray Disk Masters for the Same Cost as DVD Masters Developed...

  • Page 7
    ..., ended March 31, 2005, Victor Company of Japan, Limited (JVC), reported declines in net sales and operating income. These results and the posting of an extraordinary loss mainly due to special retirement allowances stemming from structural reform produced a net loss for the fiscal year under review...

  • Page 8
    ... that internal factors are primarily responsible for our fiscal 2005 results. We have identified three main factors contributing to our weak performance. First, we were counting on launches of new consumer electronics products-including digital video cameras, DVD recorders, and flat-screen TVs-to...

  • Page 9
    ... grew in Japan and overseas, increasing their market share. Furthermore, our worldwide launch of "Everio", the world's first compact hard disk camcorder, went over well. Three-in-one DVD/VHS/hard disk drive combo recorders, audio systems featuring wood cone speakers-a product that exemplifies...

  • Page 10
    ... forefront of innovation working together seamlessly as a team. It is home to roughly 1,000 employees, mainly consumer electronics engineers, who are working to improve communication and speed up product development through active and open discussion. The center is designed to facilitate the passing...

  • Page 11
    M edium- Term M anagement Plan: Are We Implementing Continuous Structural Reform? Why Why Are We Accelerating Our Growth Strategy? Le a p Ahe a d 2 1 To Achieve Our Leap Ahead 21 Targets Vic t o r C o m p an y o f J ap an , L im it ed 9

  • Page 12
    ... our five key growth businesses are as follows. High Definition Displays With HD-ILA rear projection TVs, which have been launched in the United States and Japan and are slated for introduction in China and other countries in Asia, flat panel display (FPD) TVs, and cathode ray tube (CRT) TVs as the...

  • Page 13
    ... LCD TVs, our HD-ILA rear projection TVs incorporate our proprietary D-ILA technology, which is being used in Japan Broadcasting Corporation's Super Hi-Vision and digital cinema research, to achieve energy efficiency along with bright, high-resolution large-screen images. JVC's In-House Developed...

  • Page 14
    ... as quality, retail price, manufacturing cost, inventory, and schedules; reinforce product model based management; and bolster product capabilities. At the same time, we will rework the organizational framework to put into place product category based development, production, and sales. Moreover, we...

  • Page 15
    ...Ove rvie w Consumer Electronics This segment develops, manufactures, and sells consumer audio and visual products as well as car electronics products. In fiscal 2005, the segment generated sales of ¥627.3 billion, representing a 2% decline from the previous fiscal year and accounting for around 75...

  • Page 16
    ... the world's first 32-bit CPU dedicated to image processing. This hard disk camcorder utilizes a one-inch hard disk drive as a storage device and incorporates a newly developed 3-CCD camera system to deliver a high quality picture. High Definition LCD TVs "Everio" Hard Disk Camcorder 14...

  • Page 17
    ...-ILA rear projection TVs as we work to meet our target of total sales of 300,000 sets by the end of fiscal 2006. Three-in-One DVD/VHS/Hard Disk Combo Recorder VHS, hard drive, and DVD recording in a single, sleek component that incorporates JVC's proprietary high quality technologies. DVD Compact...

  • Page 18
    ... to develop new core technologies and products, with an eye to creating a bright future for our optical disk business. In June 2005, JVC added a 3-CCD, five megapixel model to its flagship series of "Everio" hard disk camcorders. JVC aims to create a new recording culture and a new market via...

  • Page 19
    ...base. In China, we are looking to storm the home theater market and generate synergies with audio products and DVD recorders via the introduction of HD-ILA rear project ion TVs as p art of effort s t o furt her exp and sales. Moreover, we will endeavor to boost sales of car electronics products and...

  • Page 20
    Professional Electronics This segment develops, manufactures, and sells surveillance systems comprising cameras and such peripheral equipment as disk recorders as well as camera recorders, audio equipment, projectors, and a range of other products for professional use. In fiscal 2005, this segment ...

  • Page 21
    ...2005 to September 2005. Among the D-ILA projectors in use at three pavilions is a Super High Vision projector developed in collaboration w ith Japan Broadcasting Corporation (NHK) that delivers the world's first super high definition images. Under the Leap Ahead 21 plan, the Professional Electronics...

  • Page 22
    ... out the in-house production of components for JVC products, this segment has become focused on supplying customers outside the JVC Group over the years. Now, we are bringing the business back to its roots, shifting the focus of operations to key devices that will help to set our products apart from...

  • Page 23
    ...for car CD receivers, proactively develop optical pickups for car DVD receivers, and achieve a recovery in sales of high-density multilayer PWBs. Through these efforts, we aim to boost segment sales and record an operating profit in fiscal 2006. Fluid Dynamic Bearing Motors for Hard Disk Drives JVC...

  • Page 24
    ... Software business identifies, develops, and manages promising artists as well as produces, sells, and distributes content. In fiscal 2005, sales declined 35% , to ¥95.9 billion, and operating income was down 49% , to ¥2.4 billion. JVC's media business will build its growth upon digital recordable...

  • Page 25
    ... development of the world's first Blu-ray/DVD combo ROM disc technology, which uses proprietary, high-performance reflective film to enable storage of both high definition video and standard definition video on a single disc. The Japan Recording Media Industries Association projects that the market...

  • Page 26
    Software & Media Software Business JVC's Software business comprises a number of ke y c omp a nie s, inc lud ing Vic tor Entertainment, Inc., and Teichiku Entertainment, Inc., which produce and sell music and video content, and Nippon Record Center Co., Ltd., a logistic s c omp a ny. Stra te gic a ...

  • Page 27
    ... Entertainment Company In the year under review, sales in the Software business declined markedly, largely as a result of the postponement of major releases by popular artists and lower sales of music software stemming from the expiration of sales consignment contracts with key industry players...

  • Page 28
    ...highvalue-added displays. In addition, we successfully developed numerous new optical disk media technologies, including DVD and Blu-ray technologies. In fiscal 2005, we also established the JVC Technology Expert Group (JTEG). In-house experts in high quality audio and visual, high-density recording...

  • Page 29
    ...-generation optical disc products, current DVD recorders, and car CD/DVD receivers as well as appropriately allocated resources to these teams. We are picking up the pace of our R&D activities to accelerate growth in the optical disc business and launch distinct products that offer superior added...

  • Page 30
    ... directive at our manufacturing sites around the Designing Eco-Friendly Products 1. Promoting Green Procurement JVC has worked to ensure that the products it ships to EU member countries do not contain any substances restricted by the EU's Restriction of the Use of Certain Hazardous world as well...

  • Page 31
    ... as well. Moreover, we are developing products that reduce energy consumption. Our 61-inch HD-ILA rear projection TVs, which were launched in the United States in fiscal 2005 and in 3. Recycling End-of-Life Products in Europe In February 2003, the EU's Waste Electrical and Electronic Equipment...

  • Page 32
    ... hardware-from TV monitors to audio and visual equipment for the stadium- and we help out by providing AV equipment and other products. At last year's Portugal tournament, supporters from around the world viewed games that they did not have tickets for on a giant screen set up in the center of town...

  • Page 33
    ... works of art. The Tokyo Video Festival provides an opportunity for people who have never picked up a video camera before to experience the fun of filming and the joy of viewing their creations. Through the festival, JVC aims to promote video software production as one way to enjoy video technology...

  • Page 34
    ... Company, JVC Americas Corporation 17 Hiroyuki Takekura President, Professional Systems Company 12 Masuichiro Mimura Executive Vice President, AV & Multimedia Company; General Manager, AV System Category; General Manager, Sales & Marketing Department, Mobile Entertainment Category, AV & Multimedia...

  • Page 35
    ... five business segment companies-the AV & Multimedia Company, the Professional Systems Company, the Components & Device Company, the Media Company, and the Entertainment Softw are Comp any- and three regional companies-the Americas Company, the Europe Company, and the Asia & the Middle East Company...

  • Page 36
    ...to Consolidated Financial Statements Independent Auditors' Report Six- Year Summary Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31 Thousands of U.S. dollars (Note 1) Millions of yen 2005 2004 2003 2002 2001 2000 2005 For the year: Net sales Overseas...

  • Page 37
    ..., camcorders, CRT TVs, LCD TVs, Plasma TVs, rear projection TVs, stereo systems, car AV systems, DVD players, DVD recorders, and portable audio ¥68.3 8.1% 1.2% ¥46.7 (6.4)% ¥21.6 22.7% ¥67.5 7.3% Professional-use and educationaluse systems, information systems, karaoke systems, and projectors...

  • Page 38
    ... robust performance of LCD TVs and DVD recorders, the launch of hard disk camcorders, and expanded sales of audio products. In Asia excluding Japan, sales of car electronics and displays gained ground. In the United States, sales of D-ILA rear projection TVs, car electronics, and LCD TVs grew, but...

  • Page 39
    ... sales consignment contracts for music CDs, which outweighed growth in sales of DVD recordable media. Components & Devices Segment sales dropped 30.5%, to ¥43.2 billion; however, the operating loss shrank from ¥3.1 billion in fiscal 2004 to ¥1.7 billion. The robust performance of hard disk drive...

  • Page 40
    ... section. Property, plant and equipment rose ¥6.7 billion, to ¥96.2 billion, mainly reflecting investments related to the new technology center and the prod uction of D- ILA d evices. Investments and ad vances decreased ¥6.0 billion, largely as a result of the sale of investment securities. Total...

  • Page 41
    ...fiscal year, to ¥29.0 billion. This increase primarily represents investments related to the production of D-ILA devices at the Company's Yokosuka Plant and HD-ILA rear projection TVs at the Company's manufacturing subsidiary in Mexico. Depreciation and amortization increased 3.0%, or ¥0.7 billion...

  • Page 42
    Consolidated Balance Sheets Victor Company of Japan, Limited and its consolidated subsidiaries March 31, 2005 and 2004 Thousands of U.S. dollars (Note 1) Millions of yen ASSETS 2005 2004 2005 Current assets: Cash and time deposits (including time deposits with maturities over three months of ...

  • Page 43
    ...2005 2004 2005 Current liabilities: Bank loans (Note 8) Current portion of long-term debt (Note 8) Notes and accounts payable: Trade Non-consolidated subsidiaries and affiliated companies... holding gains on available-for-sale securities Foreign currency translation adjustments Treasury stock, at...

  • Page 44
    Consolidated Statements of Operations Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2005, 2004 and 2003 Thousands of U.S. dollars (Note 1) Millions of yen 2005 2004 2003 2005 Net sales Costs and expenses: Cost of sales Selling, general and ...

  • Page 45
    Consolidated Statements of Stockholders' Equity Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2005, 2004 and 2003 Millions of yen Net unrealized Number of shares of common stock (Thousands) Common stock Capital surplus Retained earnings holding gains on ...

  • Page 46
    ... (used in) operating activities Cash flows from investing activities: Purchases of time deposits Withdrawal of time deposits Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Proceeds from sales of marketable securities Purchases of investment securities...

  • Page 47
    ... Statements Victor Company of Japan, Limited and its consolidated subsidiaries Years ended March 31, 2005, 2004 and 2003 1 BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been p rep ared in ac c ord anc e w ith the p rovisions set...

  • Page 48
    ... are included in selling, general and administrative expenses. This change reflects the recognition that royalty income is directly attributable to the Company's principal operating activities, in light of the increasing number of technological alliances with partners both in Japan and overseas, and...

  • Page 49
    ... of the countries in which they domicile. The following table summarizes the significant differences between the statutory tax rate and the Companies' effective tax rate for financial statement purposes for the years ended March 31, 2005 and 2004. Acquisition cost Book value Difference 2004...

  • Page 50
    ... (Interim Report)", and the effect of transferring of the substitutional portion was recognized on the date permission was received from the Minister of Health, Labor and Welfare. As a result, in the year ended March 31, 2003, the Company and its consolidated domestic subsidiaries recorded gains on...

  • Page 51
    ... plan assets used by the Company are 2.7% and 3.0% in 2005, and 2.7% and 3.0% in 2004, and 3.0% and 3.0% in 2003, respectively. 11 STOCKHOLDERS' EQUITY Under the Japanese Commercial Code (the "Code"), at least 50% of the issue price of new shares is required to be designated as common stock. The...

  • Page 52
    ... accumulated depreciation and net book value at March 31, 2005 and 2004 is as follows: Millions of yen Acquisition cost Accumulated depreciation Net book value The Companies use derivative financial instruments in the normal course of their business to manage the exposure to fluctuations in foreign...

  • Page 53
    ... INFORMATION Information by segment for the years ended March 31, 2005, 2004 and 2003 is shown in the tables below. (1) Business segment information is as follows: Millions of yen Consumer electronics business Professional electronics business Components & Devices business Software & Media business...

  • Page 54
    ... electronics business increased by ¥7,356 million, ¥4,066 million, and ¥3,290 million, respectively. (2) Geographical segment information is as follows: Millions of yen Elimination and Japan Americas Europe Asia Total unallocation Consolidated total 2005: Sales External sales Intersegment sales...

  • Page 55
    ... of Japan increased by ¥7,356 million, ¥4,066 million, ¥3,290 million, respectively. (3) Overseas sales information by geographic area is as follows: Millions of yen Americas Europe Asia Other areas Total 2005: Overseas sales Consolidated sales Ratio of overseas sales to consolidated sales 2004...

  • Page 56
    ...' Re port To the Board of Directors of Victor Company of Japan, Limited We have audited the accompanying consolidated balance sheets of Victor Company of Japan, Limited and consolidated subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders...

  • Page 57
    ... Products High-density, multi-layer printed wiring boards, D-ILA devices DVD recorders, Camcorders, LCD TVs, Rear projection TVs Audio equipment DVD discs (pre-recorded), Electronics components (optical pickups) Professional, educational, and information-related equipment Recording media products...

  • Page 58
    ... Sites Company Name JVC Manufacturing U.K. Ltd. JVC Video Manufacturing Europe GmbH JVC Disc America, Co. JVC Industrial de Mexico, S.A. de C.V. JVC Electronics Singapore Pte. Ltd. JVC Electronics Malaysia Sdn. Bhd. JVC Video Malaysia Sdn. Bhd. JVC Manufacturing (Thailand) Co., Ltd. JVC Components...

  • Page 59
    ...JVC AV Equipment Co., Ltd. Beijing Kelin JVC Electronic System Engineering Co., Ltd. JVC Purchasing Center (H.K.), Ltd. Kuang Yuan Co., Ltd. JVC Procurement Asia (A Division Company of JVC Asia Pte. Ltd.) JVC Electronics (Thailand) Co., Ltd. Location U.S.A. U.S.A. U.S.A. United Kingdom Belgium China...

  • Page 60
    ... JVC Professional Europe Ltd. established • Introduced GR-HD1, high definition digital video camera • Introduced EX-A1, compact component system 2003 GR-HD1 2003 EX-A1 2004 • Sponsored UEFA EURO 2004TM • Introduced D-ILA rear projection TV • Introduced home theater projection system...

  • Page 61
    ... Solution Div. Professional Products & Systems Marketing Div. Global Strategic Marketing Dept. Americas Company Europe Company Asia & the Middle East Company Corporate Management Division for China Components & Device Company Motor Div. Circuit Board Div. Display & Optical Component Div. Media...

  • Page 62
    ... Europe GmbH JVC Belgium S.A./N.V. JVC Nederland B.V. JVC International (Europe) GmbH JVC Asia Pte. Ltd. JVC Electronics Singapore Pte. Ltd. JVC Electronics Malaysia Sdn. Bhd. JVC Video Malaysia Sdn. Bhd. JVC Sales & Service (Thailand) Co., Ltd. JVC Manufacturing (Thailand) Co., Ltd. JVC Components...